New Mexico Community Property and Estate Planning

Quick Summary: New Mexico Community Property and Estate Planning

• Most property acquired during a marriage will count as community property.
• Exceptions are when property is inherited by one spouse or an agreement designates it separate.
• Surviving spouses are entitled to at least 50% of community property after their spouse passes.
• Both spouses must consent to arrangements that transfer community property ownership, including creation of trusts.
• Failing to understand the legal consequences of community property can cause some or all of your estate plan to be set aside, potentially resulting in an intestate estate where 100% of community property goes to a surviving spouse.

Need immediate help? Contact New Mexico Financial & Estate Planning Attorneys.

New Mexico is a community property state, which means that most assets acquired during a marriage are legally co-owned by both spouses. This arrangement could provide some conveniences for estate planning, in theory, especially if an estate unexpectedly becomes intestate because of an invalid will. 

In practice, however, couples will need to carefully consider community property laws in New Mexico while making estate planning arrangements. Otherwise, they may unintentionally violate their spouse’s rights to access and control community property. Further, some estate planning strategies, like the use of an irrevocable asset protection trust, require joint consent before the trust can be funded with community property.

New Mexico Financial & Estate Planning Attorneys can help you incorporate your spouse in your estate plan while staying within the bounds of state law. We can also help you use spousal rights and privileges in your favor to help simplify the estate settlement process after you pass.

Get help building your estate plan with community property laws in mind by reaching out to an experienced attorney. Schedule a confidential appointment today with no further obligation when you call our firm at (505) 503-1637 or contact us online.

How Community Property Affects NM Estate Plans

Only nine states in the U.S. have community property laws. They are: New Mexico, Arizona, Texas, Nevada, California, Idaho, Louisiana, Washington, and Wisconsin. 

Speaking generally, these states expect each spouse to have equal access and entitlement to nearly all property that has been obtained since the start of the marriage, with only a few exceptions.

In estate planning, community property laws in New Mexico can affect the available strategies and arrangements in the following ways:

• Both spouses must consent to arrangements that transfer control or ownership of community property to another party, such as a trust.
• The surviving spouse is entitled to receive at least 50% of the total community property upon the other spouse’s death (NM Stat § 45-2-807), even if the deceased spouse’s will and/or other components of their estate plan provide otherwise.
• A surviving spouse inherits all community property if the other spouse died without a valid will (NM Stat § 45-2-102).
• All community property not disposed of (i.e., gifted to an heir) through a will or non-probate arrangement is considered intestate, meaning it automatically becomes the property of the surviving spouse.
• Unless a will explicitly states otherwise, a divorce or annulment automatically revokes a former spouse’s right to receive a transfer, a fiduciary appointment (such as serving as a trustee or PR), or joint tenancy in common with rights of survivorship property interest, the latter of which reverts instead to an “equal tenancies in common” interest (NM Stat § 45-2-804).

There are other laws that could have an effect on your estate plans, intestate succession, and other arrangements, as well. But these are some of the biggest ones to be aware of. 

If you have questions about estate planning for married couples in New Mexico, you can get answers, learn more, and start forming smart strategies by reaching out to an experienced attorney.

What Is Considered Separate Property Versus Community Property in New Mexico?

After a marriage, any property acquired by either spouse that is not considered legally separate will be designated as community property. New Mexico law (NM Stat § 40-3-8) explicitly states that only the following classes of property are considered separate:

• Property acquired before a marriage or after entry of a decree of dissolution of marriage
• Property specifically gifted to or inherited by one spouse, but not the other
• Property designated as separate by a written agreement, such as a prenuptial or postnuptial agreement
• Property designated as separate property by a judgment or decree of any court having jurisdiction

All other property acquired during a marriage is considered community property. 

Interest, rents, and capital gains generated by community property are considered community property, as well, unless specified otherwise through a community property agreement in New Mexico.

Gains in value to a separate property, including a home or business, may also be designated as community property in proportion to the other spouse’s contributions, direct or indirect. This is especially true if related assets, upkeep, maintenance, or enjoyment of the property or its generated interest are shared and commingled between spouses. 

Commingled separate property may also be “transmuted” into community property over time. 

Refer to an attorney to determine which property may be considered separate.

What Happens to Community Property After a Spouse Dies?

If there is no will, or certain community property is left out of the will or another governing instrument, the property is considered intestate. Surviving spouses inherit 100% of intestate community property (NM Stat § 45-2-102).

When creating their will, each spouse is only entitled to distribute up to 50% of their combined community property to someone other than a surviving spouse (NM Stat § 45-2-807). The surviving spouse is automatically entitled to receive the other half of the community property. 

Of course, the spouse creating their will can (and usually does) leave some of their own half of community property to their surviving spouse.

If a will fails to provide a surviving spouse with at least 50% of community property, then the surviving spouse’s inheritance rights in New Mexico can be used as grounds to override bequests and devises so that the surviving spouse retains at least 50% of the community property. In other words, someone can’t will community property to someone else when it technically belongs to their surviving spouse!

How Is Community Property Affected by Creditor Claims During Probate?

One unfortunate effect of community property laws in New Mexico is that creditors can be entitled to claim up to 100% of the community property (minus the family allowance and personal property allowance) for the repayment of debts when a spouse dies. However, before the surviving spouse’s half can be claimed, these claims must be paid out of the deceased spouse’s separate property and their half of the community property first. 

Couples facing the risk of substantial creditor claims, including claims related to judgments and court awards, may want to consider their options for asset protection estate planning in New Mexico, accordingly. They can form an irrevocable asset protection trust, for example, to remove their claim to the property, especially when a neutral trustee is appointed and given discretionary powers over distributions.

Couples should discuss the use of an irrevocable trust, however, because of spousal consent requirements for community property. Both spouses must consent to a transfer of community property into a trust, even if it’s a New Mexico revocable living trust.

If you are concerned about creditor claims while creating a will or undergoing probate, reach out to New Mexico Financial & Estate Planning Attorneys. Senior attorney Don Harris is certified in creditors’ rights by the American Board of Certification. His credentials give him deep experience with handling, disputing, and settling creditor claims. This familiarity could potentially benefit families going through the estate planning or probate process.

NM Community Property Estate Planning Strategies

Many couples elect to use a simple will arrangement that leaves 100% of community property and the majority of their separate property to a surviving spouse. This arrangement is not only convenient, but it also takes advantage of the unlimited marital deduction from gift and estate taxes, provided that the recipient is a U.S. citizen.

You are not required to give more than 50% of community property to a spouse, however. You are allowed to will all of your separate property and your half of community property to a non-spouse heir. 

On the other hand, you are required to transfer ownership interest in any homes or other real property that was owned in joint tenancy to that surviving tenant unless an agreement, decree, or judgment has approved an alternate arrangement.

Spouses may use a joint will or mutual will to ensure that their estate planning arrangements are identical and mutually binding. However, because of possible complications that can arise from these arrangements, including the inability to transfer property interests to a non-beneficiary party after the death of the first spouse, couples may wish to create a non-mutually-binding will structure instead, where each will closely mirrors the other but is not bound by it.

Couples can also elect to place some, most, or all of their community property into a joint revocable trust. The surviving spouse typically inherits sole control of the trust, but an A/B trust structure can be used instead to split off the deceased spouse’s share into an income-generating credit shelter trust. 

For more information on estate planning for married couples and creating wills in New Mexico, refer to the services of an experienced attorney.

Family Allowance and Personal Property Allowance

Note that a surviving spouse is entitled to receive at least $30,000 from an estate as a family allowance (NM Stat § 45-2-402) and an additional $15,000 as a personal property allowance (NM Stat § 45-2-403) unless they explicitly waive this right. 

These payments pre-empt all other estate administration expenses, creditor claims, and inheritances during probate. They can be satisfied with other transfers arranged in a will or other estate planning instrument, however, including an intestate transfer.

Get Help With Estate Planning for Couples; Reach out to an Experienced New Mexico Law Firm

Probate and community property in New Mexico can lead to some confusion unless couples consider the special legal rights granted to surviving spouses. 

New Mexico Financial & Estate Planning Attorneys can help you account for all of these provisions, restrictions, and requirements. We can ensure that your plans account for the needs of your surviving spouse and family while also weighing the possible risks and unknowns that could emerge.

Plan for the future, and account for the effect community property can have on your strategies when you discuss your options with our experienced estate planning and probate lawyers. Schedule a confidential, no-obligation consultation when you call our firm at (505) 503-1637 or contact us online.